Stock Based Compensation

9 Months Ended

Mar. 31, 2022

Share-Based Payment Arrangement [Abstract]

Stock Based Compensation

Note 4. Stock Based Compensation

The Company follows ASC 718 in establishing standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, as well as transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. ASC 718 requires that the cost resulting from all share-based payment transactions be recognized in the financial statements based on the fair value of the share-based payment. ASC 718 establishes fair value as the measurement objective in accounting for share-based payment transactions with employees, except for equity instruments held by employee share ownership plans.

Total stock-based compensation expense recognized in the statements of comprehensive income (loss) for the three-month periods ended March 31, 2022 and 2021 was $39,699 and $25,412, respectively, before income taxes. The amount of this stock-based compensation expense related to non-qualified stock options (“NQSO”) for the three-month periods ended March 31, 2022 and 2021, was $6,582 and $7,366, respectively. The deferred tax benefit related to the NQSO’s as of March 31, 2022 and 2021 was approximately $1,382 and $1,547, respectively. Total stock-based compensation expense recognized in the statements of comprehensive income (loss) for the nine-month periods ended March 31, 2022 and 2021, was $134,266 and $106,286, respectively, before income taxes. The amount of this stock-based compensation expense related to non-qualified stock options (“NQSO”) for the nine-month periods ended March 31, 2022 and 2021, was $22,705 and $25,497, respectively. The deferred tax benefit related to the NQSO’s as of March 31, 2022 and 2021 was approximately $4,768 and $5,354, respectively. The remaining stock option expense in each year related to incentive stock options (“ISO”) which are not deductible by the corporation when exercised, assuming a qualifying disposition and as such no deferred tax benefit was established related to these amounts.

As of March 31, 2022, there was approximately $179,612 of unrecognized compensation cost related to stock option awards that is expected to be recognized as expense over the next 1.75 years, of which $146,291 relates to ISO’s and $33,321 relates to NQSO’s. The total deferred tax benefit related to these non-qualified stock option awards is expected to be $6,997.

The Company has one employee stock option plan under which options or stock awards may be granted, the 2017 Stock Option and Restricted Stock Plan (the "2017 Plan"). The Board of Directors may grant options to acquire shares of common stock to employees and non-employee directors of the Company at the fair market value of the common stock on the date of grant. The maximum aggregate number of shares of Common Stock subject to options or awards to non-employee directors is 133,000 and the maximum aggregate number of shares of Common Stock subject to options or awards granted to non-employee directors during any single fiscal year is the lesser of 13,300 and 33 1/3% of the total number of shares subject to options or awards granted in such fiscal year. The maximum number of shares subject to options or awards granted to any individual employee may not exceed 15,000 in a fiscal year. Generally, options granted have a two-year vesting period based on two years of continuous service and have a ten-year contractual life. Option grants provide for accelerated vesting if there is a change in control. The plan allows for cancelled or expired options to be re-granted to participants at a later date. Shares issued upon the exercise of options are from those held in Treasury. Options covering 400,000 shares are authorized for issuance under the 2017 Plan. As of March 31, 2022, options covering 303,904 shares have been granted, of which 198,578 are outstanding, and 201,422 remain available for grant, after factoring cancelled or expired options which are eligible to be re-granted. While no further grants of options may be made under the Company’s 2007 Stock Option and Restricted Stock Plan, as of March 31, 2022, 66,400 options were outstanding under such plan of which all are vested and exercisable.

9

ASC 718 requires the use of a valuation model to calculate the fair value of stock-based awards. The Company has elected to use the Black-Scholes option valuation model, which incorporates various assumptions including those for dividend yield, volatility, expected life and interest rates.

The table below outlines the weighted average assumptions that the Company used to calculate the fair value of each option award for the nine months ended March 31, 2022 and 2021.

	March 31, 2022		March 31, 2021
Dividend yield		0%		5.54%
Company’s expected volatility		25.56%		23.41%
Risk-free interest rate		0.93%		0.36%
Expected term		5.4 yrs		5.4 yrs
Weighted average fair value per share of options granted during the period		$3.72		$1.59

Effective March 9, 2021, the Company suspended the payment of its regular quarterly dividend. For the nine months ended March 31, 2022, the Company paid no cash dividends. For the nine months ended March 31, 2021, the Company paid regular cash dividends of $0.50 per share. Expected stock price volatility is based on the historical volatility of the Company’s stock. The risk-free interest rate is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options. The expected option term (in years) represents the estimated period of time until exercise and is based on actual historical experience.

The following table summarizes stock option activity during the nine months ended March 31, 2022:

	Employee Stock Options Plan
					Weighted
	Number of		Weighted		Average
	Shares		Average		Remaining		Aggregate
	Subject		Exercise		Contractual		Intrinsic
	to Option		Price		Term		Value
Balance at July 1, 2021		304,662	$	23.37		6.06
Granted		77,550	$	14.76		9.31
Exercised		—		—		—
Forfeited or expired		(117,234)	$	22.62		—
Outstanding at March 31, 2022		264,978	$	21.18		6.57	$	--
Vested or expected to vest at March 31, 2022		246,809	$	21.56		6.40	$	--
Exercisable at March 31, 2022		160,953	$	24.51		4.99	$	--

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the closing sale price of the Company’s common stock as reported on the NYSE American on March 31, 2022 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders if all option holders had exercised their options on March 31, 2022. This amount changes based on the fair market value of the Company’s common stock. The intrinsic value of options exercised during the nine months ended March 31, 2022 and 2021 was $0, resulting from no option exercise activity during those periods.

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The following table summarizes changes in non-vested stock options during the nine months ended March 31, 2022:

	Weighted Number		Average
	of Shares Subject to Option		Grant Date Fair Value (per Option)
Non-vested at July 1, 2021	103,450	$	2.22
Granted	77,550	$	3.72
Vested	(43,025)	$	3.03
Forfeited or expired	(33,950)	$	2.55
Non-vested at March 31, 2022	104,025	$	2.90